Itochu Corp

I am Ishii, President of Itochu Corporation. Let me explain our FIE 2024 Business Results and the FIE 2025 Management Plan. On April 3, we only released an overview of the FIE 2025 Management Plan, so today I will intend to go over this in more detail. First, let's look at FIE 2024 Business Results Summary released on May 8. Please turn to page 2. This shows the summary of our FIE 2024 Business Results. Consolidated net profit amounted to 801.8 billion yen reaching 800 billion yen for the third consecutive year. Based on the solid earning space, centered on Itochu's distinctive strength in non-resource sector, we established a new growth foundation for the future, taking swift and steady measures to address future concerns in addition to securing profit contributions from strategic investments and improvements in businesses that had been weak. Core profit rose to 789 billion yen, setting a record high for the third consecutive year. The machinery company, food company, ICT and financial business company, and the eighth company all achieved record highs for core profit. Achieving record high core profit in the non-resource sectors is one of the evidences that we have been able to further solidify a balanced earning space resilient to economic fluctuations. Core profit has steadily risen every quarter, going from ¥190 billion in Q1 up to ¥193.5 billion in Q2, ¥200 billion in Q3 and 205.5 billion yen in Q4. These hard numbers reflect how Itochu has stably built up its earnings power. Moreover, the results have remained strong for group companies, which is another strength of Itochu. In addition to record high profit contributions, the ratio of group companies reporting profits has reached a record high of 92%. Although core operating cash flows declined year-on-year to 823 billion yen due in part to interest payments brought about by rising interest rates, this was still the second highest level in our history. Stable performance in operating revenues, especially in the non-resource sector, contributed to this achievement. Net DER was 0.51 times. This is roughly level with the previous fiscal year, as an increase in shareholders' equity offset the higher interest-bearing debt mainly attributable to large-scale investments in CTC and DICAM. ROE declined to 15.6% year-on-year but remained at high level due to an increase in shareholders' equity stemming from yen's depreciation and the steady accumulation of profit. Consolidated net profit per share reached a record high, 553 yen. Profit on the per share basis, which is of particular interest to shareholders, also steadily increased due to an expansion of shareholder returns through share buybacks, executed actively and continuously on the back of our solid earning space. Next, please go to page 3. This shows business results by segment. The machinery company achieved record high profit for the third consecutive year due to the contributions from the overseas automotive business, which expanded sales in response to the solid demand. Hitachi Construction Machinery, which performs strongly especially in North America, and the North American Electric Power Business, which achieved a significant increase in profit by selling renewable energy by developing assets. The food company saw a significant increase in profit despite an impairment loss on the North American chocolate business of Fuji Oil Holdings. The increase was mainly due to the absence of Dole's previous year's impairment losses, in addition to Dole's improved earning power attributable to thorough hands-on management an expansion in trade with Nippon Access, and a strong performance in provisions trading. Profit increased in the eighth company despite an increase in various operating costs at Family Mart due to an increase in the number of customers and the spend per customer amid the success of various campaigns and introduction of new products such as nama-koppe bread in addition to the recovery in the flow of people. In the ICT and financial business company, the profit increased despite the impairment loss on Orient Corporation. The increase was attributable in part to a strong performance of privatized CTC in meeting Waba's digitalization needs, an enhancement in the ability of Hokken no Madoguchi Group to attract customers using such measures as detailed customer follow-ups, and an improvement in the measurement of fund-held investments which did not perform well in the previous year. In the textile company, profit increased due to the firm performance of the apparel business, arising from the inbound demand and the recovery in the retail market amid a rebound from the COVID-19 pandemic. On the other hand, profit decreased in the metals and minerals company, energy and chemical company, general products and realty company, and in others, due in part to the effects of the market downturns. Now jumping ahead a few pages, please go to cash flows on page 6. Operating cash flows amounted to a record high ¥978.1 billion due to dividends received from equity method investments in machinery company, metals and minerals company, in addition to the stable performance in operating revenues in the eighth company, general products and realty company, and food company. Core operating cash flows totaled ¥823 billion, including an increase in taxes paid and interest expenses due to the rising interest rates. Net investment cash flows came to a net outflow of ¥614 billion due in part to conducting such large-scale investments as the public tender offer for CTC and DAIKEN. Core free cash flows were positive at 209 billion yen. Next, please turn to page 7 for financial position. Due to the stable accumulation of profit and yen depreciation, shareholders' equity reached a record high of 5.4 trillion yen, and net DER was 0.51 times roughly on par with the previous year end. Although the interest-bearing debt increased due in part to the additional acquisitions of CTC and DAIKEN, the increase in shareholders' equity surpassed it, and we continue to firmly maintain a robust financial foundation. Now, I'd like to move on to the FIE 2025 Management Plan. we will skip over the brand new deal 2023 general review on pages 10 and 11, since this is the same as the previous briefings and the disclosures to date. So please go to the page 12. Regarding the profit plan, shareholder returns, and growth investments at the top of the page, there is no change from the announcement on April 3, so today I will go over the bottom part of the page about the consolidated net profit and core profit. The consolidated net profit plan for FIE 2025 is 880 billion yen and includes a buffer of 40 billion yen and extraordinary gains of 60 billion yen. Accordingly, the earnings base for FIE 2025 excluding the buffer is expected to be 920 billion yen. Although FIE 2024 core profit was a record high of 789 billion yen under the FIE 2025 plan, we expect to build up core profit by less than 10% after making predetermined adjustments for assumptions of foreign exchange rates, interest rates, resource prices, and other factors. Specifically, we forecast an accumulation in profit due in part to normal organic growth, improvements in business that have already been implemented measures for turnaround, such as the businesses in food company, and increases in profits from investments that have already been conducted. We expect to set a new record high in core profit in FIE 2025 up around 71 billion yen to 860 billion yen. We have a track record of achieving a compound annual growth rate of 10% for the 14 years from FIE 2011 to FIE 2024, and 7% for the last two years of the previous medium-term management plan, and we believe that the increase of the core profit in the plan is also at a sufficiently achievable level. In addition, the extraordinary gains of 60 billion yen include highly achievable projects in textile company, energy and chemical company, general products and realty company, and the other segment, and we expect the total earning space to reach 920 billion yen. Now please turn to page 13. The upper part of the page is the profit plan. by segment. Details for each segment are listed from page 16, so please refer to them when appropriate. In the textiles company, inbound demand was strong due to good deals enabled by yen depreciation, and performance was especially strong among the retail stores for medium to high-end brands. In addition, the performance of manufacturing-related businesses, especially sports-related ones, remained strong by capturing demand spurred by a recovery in retail market conditions. In FIE 2025, we expect an increase in profit due to extraordinary gains following the replacement of some assets in addition to an increase in core profit due to an expansion in the lineup of brand products and the launch of new products in apparel-related businesses, especially in the sports field, such as Converse and Under Armour, which had been the focus of the division company. In the machinery company, we believe we can handle the return to normal in the North American electric power business and automotive business, which were especially strong in the previous fiscal year. In addition to the continued strong performance for the construction machinery, especially in North America, performance is expected to remain strong for leases, aircraft, shipping vessels, and other businesses. While maintaining a high level of profit on power with FIE24, which set the record high, we are currently preparing for the next growth investment projects aiming to expand the foundation of our business. In metals and minerals company, there will be contributions from higher revenue in iron ore and coking coal, where we conducted new investments in North America, in addition to cost improvements and higher volume in iron ore and coal business in IMEA, which is building a solid earning space. In addition, we will continue to take steps to enhance the earnings power through new growth investments in the metal and mineral resource sector. In the energy and chemicals company, the power and environmental solution division will continue to increase the core profit by continually taking measures to steadily expand business fields, such as measures to enhance medium- to large-scale energy storage system while maintaining the stable revenue from the electric power transactions and decentralized energy management. As for chemicals division, we expect the recovery in overseas business which struggled in the previous fiscal year in addition to the strong performance of the mainstay in domestic businesses, including Itochu chemical frontier. As for energy division, we will strive to improve profitability for energy trading, including crude oil and LPG, and realize the extraordinary gains and expand earning power by conducting new investments. In the food company, we are steadily carrying out a turnaround in dough and high life. High life has established a prospect for performance recovery due to the stabilization of the feed prices, and signs emerged of a rally in pork prices, especially in the United States. Dough is focusing greater attention on expanding sales, leveraging brand value, by enhancing marketing, conducting sales campaigns and improving productivity for bananas and pineapples at groves through the transfer of most management to Manila. The domestic wholesale business of Nippon Access and Itochu Shokuhin aims to achieve even more growth by working hard to improve the logistics efficiency and seize the opportunities to recapture demand that are presented by the recovery in the flow of people, including inbound demand. In addition, we expect the profit to increase in part by improving earning power through the structural reform of Fuji Oil Holdings, North American chocolate business, which recorded an extraordinary loss in FIE 2024. In the general products and realty company, we expect an increase in profit due to the extraordinary gains following asset replacement. in addition to improvement in the profitability in the European pulp production business as the pulp market bottoms out, enhancement in earning power due to the synergy with the North American construction materials business, and through the implementation of the cut principle at Daiken, which became a subsidiary in FIE 2024. and acceleration in civil engineering-related synergy with Nishimatsu Construction and Oriental Shiraishi will continue implementing acquisition strategies in the same industry in existing businesses and conducting new investments which will contribute to an expansion in the business fields as exemplified by WeCars project. In the ICT and financial business company, we expect an increase in profit due to the absence of the extraordinary losses in the previous fiscal year. In addition, we expect the growth of the privatized CTC. We will also promote the digital value chain strategy such as an alliance with Boston Consulting An acceleration of the business model transformation involving bail system 24 enhanced earning power through measures to attract customers at the high-profile Hoken no Madoguchi group and strengthen the healthcare field. In the eighth company, we will strengthen our earning power by continuing to evolve the convenience stores in addition to enhancing productivity using digital technology. strengthening the Family Mart's product lineup and sales campaigns despite the effect of the persistently high raw material and energy costs and absence of FIE 2024 extraordinary gains. Various new businesses have become profitable such as media business which uses signage installed at 10,000 stores and the advertising business which promotes the collaboration with PPIH. As a leader in the retail media business, we will expand Our operation will maintain a high level of profit by enhancing earning power through the creation of new businesses in the eighth company. In others, we expect an increase due to dexterity gains, an improvement in CBP's pork business, and CITIC's solid performance despite including a buffer of ¥40 billion for convenience. Cash allocations are detailed on the bottom of page 13. We forecast FIE 2025 core operating cash flow to be 900 billion yen, while shareholder returns of 440 billion yen account for 50% of the 880 billion yen consolidated net profit. We will combine the remaining 460 billion yen with the surplus of the previous medium-term management plan to conduct the growth investments with an upper limit of 1 trillion yen. Please go to page 14. This shows the details of assumptions of the FIE 2025 plan. The average rate for the U.S. dollar during the fiscal year was ¥140 as of April 3, but was revised to ¥145 based on the current circumstances. However, we would increase the buffer without changing the consolidated net profit plan of 880 billion yen. This is all the business results for FIE 2024 and FIE 2025 plan. The FIE 2025 plan is the first single-year management plan under the new management policy, the Brand New Deal. While maintaining an awareness of no growth without investments and profit opportunities are shifting downstream, as stated in the management policy, the entire company will come together to grow earnings and corporate value as steadily achieve the FIE 2025 plan. Thank you for your attention.